Crisis is an opportunity to revive trade reforms, says OECD report

19/03/2009 - Resisting protectionism and reviving stalled trade reforms would help the major emerging economies build on the progress achieved over the past two decades and emerge from the crisis with their trade performance strengthened, says a new OECD report.

Presenting Globalisation and Emerging Economies: Brazil, Russia, India, Indonesia, China and South Africa, OECD Trade and Agriculture Director Ken Ash said: “Trade protectionism is not the way to tackle the current economic crisis. Openness has served the BRIICS very well and the most open segments of their economies have done the best. All countries - OECD members, BRIICS, and others – should now, more than ever, strive to keep international markets open in order to improve their economic prospects.”

The report shows that Brazil, Russia, India, Indonesia, China and South Africa (BRIICS) have significantly reduced their border protection and have been expanding their exports much faster than the leading developed countries. But a “second generation” of reforms is now needed. Reducing remaining import tariff barriers, reforming domestic regulations that unduly impede trade and further opening up service sectors will enable the BRIICS to emerge stronger from the crisis.

This second generation of reform, including domestic liberalisation, is technically and administratively difficult, and will be harder to achieve than the progress made over the last 20 years, not least because of growing protectionist pressure, says the report.

Past liberalisation in BRIICS countries concerned, in particular, border measures and was largely achieved through unilateral action by national governments. But this process has now slowed or stalled. Of the remaining options – multilateral accords or preferential trade agreements – the report advocates the multilateral approach because it would yield greater gains to the economy with fewer complications for business. Even preferential agreements with large trading partners such as the US, European Union or Japan are not as beneficial as multilateral free trade, the report adds.

The report contains a number of studies of trade performance followed by individual country analyses. It highlights, for example, that:

• In relative terms, India, South Africa, Indonesia and Russia perform as well or in some cases even better than China in expanding exports over recent years.

• Certain measures of trade integration suggest that China, India, and Russia are at same level of integration into global trade as the highest income OECD countries.

• A key policy challenge in all the BRIICS countries is to make much more progress domestically on trade-related microeconomic, structural and institutional reforms.

On future multilateral liberalisation, World Trade Organisation members should recognise their shared interest in pushing for further trade reform, the report adds. The major trading nations – including OECD countries and the BRIICS – can play a leadership role in revitalising reforms by showing initiative and flexibility.